Further evidence of the fragility of the US economy has emerged in data showing weak rises in consumer prices, and factories operating at their lowest rate capacity for 17 years.

Consumer confidence was also down slightly. suggesting no early return to strong growth.

US consumer prices rose by a modest 0.4% last, according to latest figures.

This says there is room for the Fed to do whatever it needs to do to maintain growth

Carol Stone, Nomura Securities International

And US factories, mines and utilities were operating at 77.4% capacity in May, the lowest rate since August 1983, the US central bank, the Federal Reserve, said.

The figures are leading analysts to predict that the US central bank, the Federal Reserve, will make a sixth and - for now - final cut in interest rates when it meets later this month.

Fuel costs rise

In April, consumer prices rose by 0.3%.

The slight increase in May largely reflected a big jump in fuel and electricity costs.

Prices for most goods other than energy products were well-controlled.

The latest reading on consumer prices matched analysts' expectations.

The "core" rate of inflation, which excludes volatile energy and food prices, inched up a tiny 0.1% in May, compared with a 0.2% rise the month before.

May's rise was lower than many analysts had predicted and marked the best showing in five months.

Consumer confidence

The University of Michigan's preliminary June consumer sentiment index, which gives an early indication of consumer attitudes to the economy, fell to 91.6 from 92.

But the June figure was still far above the 88.4 scored in April and only slightly lower than the forecasts.

Christopher Low, chief economist at First Tennessee Capital Markets, said: "Confidence did not fall enough to suggest panic among consumers, but the numbers do not suggest a rebound in consumption either.

"Rather, it looks as though consumers are hanging on to their spending habits with their fingernails."

The final cut?

With inflation well-contained, the Federal Reserve has been able to act aggressively to stave off recession, slashing interest rates five times this year and driving down borrowing costs to the lowest point in seven years.

Economists predict that Fed chairman Alan Greenspan and his colleagues will cut rates a sixth time at their next meeting on 26 to 27 June, by either 0.25% or 0.5%.

Some say that could be the last reduction in the Fed's latest credit-easing campaign.

Analysts' reaction

Carol Stone, deputy chief economist at Nomura Securities International, in New York, said: "This says there is room for the Fed to do whatever it needs to do to maintain growth."

Companies don't have any pricing power and if they don't have any pricing power then inflation can't really be a threat

Mark Vitner, First Union Securities

Henry Willmore, chief US economist at Barclays Capital, New York, said: "Except for the big energy price increase, the 0.1% rise on the core is reassuring.

"We saw big declines in many other categories which balanced out the ongoing rise in housing costs. The bond market liked the core."

Mark Vitner, economist, First Union Securities, said: "This is the type of report we would expect to see given the slowdown that we've already experienced in the economy.

"Companies don't have any pricing power and if they don't have any pricing power then inflation can't really be a threat.

"It certainly lets them (the Fed) go a quarter percentage point and I think that's what they'd prefer to do."

US stock markets shrugged off the reports, with the benchmark Dow Jones Industrial Average down a fraction at 10690 in early trade.